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BlackBerry CEO Sets 2-Year Goal to Cut Device Reliance

BlackBerry Ltd. Chief Executive Officer John Chen said, “I don’t have a plan to get rid of handsets, I have a plan to not be dependent on handsets.” Photographer: Patrick T. Fallon/Bloomberg

April 10 (Bloomberg) -- BlackBerry Ltd.’s John Chen is
giving himself two years to overhaul the smartphone maker and
offset declining handset demand with sales of software that
connects computers with all manner of machines, from cars to
heart monitors.

Chen, who took over as chief executive officer in November,
is stepping up BlackBerry’s reliance on business customers
instead of the smartphones that made the company famous. In the
worst-case scenario in which he misses his goal of generating
cash flow by this fiscal year, Chen said he’ll have six to eight
quarters to replace declining hardware sales with higher-margin
software revenue.

“I don’t have a plan to get rid of handsets, I have a plan
to not be dependent on handsets,” Chen said yesterday in an
interview at Bloomberg’s headquarters in New York. “All I need
to do is replace the handset revenue, and this company will be
very different.”

The shift is the key to Chen’s goal of returning the money-losing company to profit by the fiscal year that ends in March
2016. Chen is in a race against time with device sales
continuing to slide -- 77 percent last quarter alone from a year
earlier. His plan to create fresh revenue streams from its QNX
software and BBM instant-messaging services has been welcomed by
investors who had driven the stock up 23 percent since he took
the helm after a failed sale process.

QNX Purchase

BlackBerry bought QNX in 2010 for $200 million from Harman
International Industries Ltd. and set about building a new
smartphone operating system, BlackBerry 10, on the software.
It’s already widely used in cars and industrial settings like
coal mines and hospitals. Now Chen wants to make it more
prevalent anywhere machines need to communicate with other
machines.

“This is where the industry is going,” Chen said. “It’s
all about device interaction. This is why it’s so important to
be agnostic.”

Chen said that by replacing single-digit phone margins with
software margins that are routinely 70 percent to 90 percent,
BlackBerry can be profitable with the same level of revenue.
Chen reiterated yesterday that he expects the Waterloo, Ontario-based company to stop losing cash by the end of this fiscal
year.

The company is focused on supplying both software and
hardware to customers in regulated industries such as finance,
government, health care and law who need security, risk
management and high productivity, Chen said. About 80 percent of
BlackBerry’s installed base of smartphone customers are in a
regulated industry, and an even higher percentage of customers
dependent on its servers are in such a field, he said.

Restoring Value

Emphasizing this core base of users and technology that
caters to them “will be the best way to capture and reverse the
decline of our value,” he said.

Chen took over after a plan to sell BlackBerry and take it
private had collapsed. He said that he’s focused on making
BlackBerry competitive again, not selling the company at a
distressed price.

“I’m not running the company for a sale,” Chen said.
“I’m running the company to generate value, to grow the
business.’

He pointed out that he ran Pyramid Technology Corp. for
five years before he sold it and Sybase Inc. for 12 years before
SAP AG bought it for $5.8 billion in 2010.

Chen inherited a company that had already been losing
smartphone market share to Apple Inc. and Samsung Electronics
Co. for years. As recently as late 2010, BlackBerry claimed 19
percent of the global smartphone market, according to IDC. By
December of last year, it had slipped to 0.6 percent.

T-Mobile Fallout

As the company shifts its emphasis to supplying software
and services, Chen recently decided to end BlackBerry’s
partnership with T-Mobile US Inc.

In February, T-Mobile started offering to swap new iPhones
for old BlackBerrys. Last week, Chen said he won’t renew the
supply agreement with T-Mobile, the fourth-largest U.S. wireless
carrier, saying that their strategies are ‘‘not complementary.”

“What kind of business person am I when I knowingly am
giving a license for a company to move my customers away?” Chen
said yesterday in the interview.

Severing ties with BlackBerry critics, cementing loyalties
with other carriers and bringing back the older and popular
BlackBerry Bold phone have been among the latest steps in Chen’s
efforts to restore faith in the company.

No Pushing

“It was easier to do this with T-Mobile,” he said. “They
are clearly focused on consumers, and I’m clearly focused on
enterprise. So this is a different conversation if it was AT&T
or Verizon.”

In recent weeks, BlackBerry also has taken legal action to
try to stamp out product leaks and just won a court order
convincing a judge that Typo Products LLC probably infringed its
patents with its clip-on keyboard.

The move to cut ties with T-Mobile wasn’t emotional, he
said. It was to send a signal.

“I wanted to make sure the world knows that we are not
going to let people push us around,” Chen said.